As ISAM grew, the firm hired staff away from London-based Man Group, including Alexander Lowe, the company’s former head of product development, and Darren Upton, who oversaw a group of researchers focused on developing trading models at its flagship $14 billion AHL Diversified hedge fund. ISAM appointed Upton chief investment officer this month, replacing Alex Greyserman, who was named the firm’s chief scientist.

ISAM’s biggest losses in 2013 have come from trading bonds, which slumped starting in May after U.S. Federal Reserve Chairman Ben S. Bernanke began signaling that the central bank may scale back its asset purchases as the economy improves.

Greyserman said the fund has underperformed because it targets as much as 50 percent more volatility than competitors, it trades more commodities and it doesn’t invest in “non-trend strategies,” according to a January client letter posted on the company’s website.

Trend ‘Mantra’

“The decision to remain pure to the trend-following mantra has recently proved costly,” Greyserman wrote. “We must accept that we can experience underperformance during periods of choppy, directionless markets.”

Trend-following funds have been hurt over the past three years as market sentiment swings from pessimistic to optimistic based on statements from politicians and perceptions of Europe’s ability to resolve its sovereign debt crisis. Man Group’s AHL has posted investment losses of 16 percent since 2010 and the fund’s assets have fallen by $9 billion.

“People say to me ‘Isn’t trend-following dead?’” Fink said. “I probably remember four or five occasions in my experience in the fund-management world when people have said that. In each case, it’s been absolutely wrong, and the industry tends to roar back when most people have capitulated.”

ISAM, which has 30 employees and manages about $635 million, has addressed its losses by increasing the number of futures markets the systematic fund trades to 85 from 50 at the beginning of last year and revising the length of time investments are held.

Currency Trades
 

The fund has also looked to expand its foreign-exchange trades beyond bets on how currencies will move against the U.S. dollar, Fink said. ISAM should benefit over the long term from being smaller than competitors like AHL, because it can invest in more markets and ones that are less liquid, he said.